Good morning!

I'll start today's report with Duke Royalty (LON:DUKE) and Haynes Publishing (LON:HYNS). and then will see where to go from there.

Duke Royalty (LON:DUKE)

  • Share price: 48p (+0.7%)
  • No. of shares: 240 million
  • Market cap: £115 million

Interim Results

Many of you will be familiar with this one: it provides investments to private companies in the form of royalties.

We can think of it as a type of corporate mortgage: the investee pays flat payments to Duke over a very long period of time (e.g. 30 years). There is no final maturity date on which the principal is paid back - the principal is considered to be paid back over the course of the agreement.

Except there is one major difference, namely, that the payments aren't flat. They increase or decrease (subject to a floor and a cap) in line with revenue changes at the investee.

It's a bit like if the bank increased your mortgage payments by 5%, whenever your income increased by 5% (or reduced them if your income declined).

It's an innovative structure, and I was a shareholder here for a while (not currently).

These interim results appear to be in line with expectations. In terms of net income, the company earned £3.3 million, versus forecasts in the market for full-year net income of £6.9 million.

EPS is 1.65p, versus full-year forecasts for 3.3p.

The Chairman would like people to focus on "net cash inflow from operating activities", a simple measure of cash generation. By this measure, Duke generated cash of £3.9 million. This consists of:

  • £4.4 million received in royalty payments
  • £600k in interest received
  • £1.1 million in operating expenses paid

Some quibbles

I have a few minor qualms about this, which would make me want to focus on the income statement more than cash flow.

Firstly, Duke's payments to its suppliers, i.e. operating expenses paid, don't happen exactly in line with when these costs are incurred.

For example: in FY 2019, Duke incurred operating expenses of £1.845 million. In H1 2020 (the period reported today), these were £1.255 million. From the income statement:


But Duke didn't pay these amounts in cash to its suppliers, as you can see on the cash flow statement. It…

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